During stressful situations, our brain alerts us to "proceed with caution". That makes sense...if we were cave men or women, it might have saved our lives. Now we are living in a stressful world with the Coronavirus and it is here to stay for the foreseeable future. Having a financial plan in this new reality is more important than ever.
We have all seen the news on the Coronavirus flu. It is hard not to see it and, therefore, may be difficult not to react to it without a sense of panic and fear; which is exactly what investors have done over the past week.
Market volatility is a part of investing. As much as we would love for the stock markets to move upward in a straight line, it is simply not how markets can work. If they did, there would be no uncertainty and if there was no uncertainty then we would just earn the risk-free rate of return. Covid-19 (coronavirus) is doing its fair share of market disruption and, while we don't yet know the extent of the impact on the global economy, we do know that past scares such as this have not had a lasting impact on the economies of the world. Our philosophy is to always prepare clients and to manage the risk of their portfolios with a strategic asset allocation that is appropriate to their unique situation.
Significant market declines are typically short-lived relative to bull markets (as illustrated in the first chart below). To provide a longer term perspective on how markets perform after a significant downswing, the second chart shows us that over the last 90 years the stock markets typically go on to offer very strong performance after the market declines by more than 10%. So, as you can see, while riding out these periods of market volatility is never easy to do, it is what allows us to enjoy the generous returns that the markets offer over time.
Should you have any questions or would like to discuss in greater detail, please call me at 773-425-6790.
Jenifer Aronson is the Founder of Mosaic Fi.